A Solution To Trading In A Market Lacking Catalysts

This article was written by James Ramelli.

Trading in 2016 hasn’t been easy. Through the first quarter traders had to deal with levels of volatility and overnight gaps in markets at levels that we have not seen in some time. However as we enter a new quarter traders are faced with a very different kind of market. In between earnings cycles the broader market can lack for catalysts and this creates a very different type of trading environment.

The average daily ranges of equity indices have fallen significantly into the end of the quarter meaning there is less opportunity for traders to speculate on markets that are have been generally choppy on an intraday basis.

At the end of January the daily average true range in the CME Emini S&P 500 futures was over 45 points. As of the yesterdays close that average range dropped to just over 24 points. Such a dramatic drop in the value of the average true range tells us that markets have been choppy. For day traders this makes for a difficult environment to trade in. When markets are range bound on an intraday time frame a day trader is forced to try and “scalp” profits out of the market. This involves taking on a potion with the expectation to exit it after small move in the right direction.

This type of trading can be inherently risky. With CME Emini S&P 500 trading around 2040.00 a single contract has a value of $102,000. While the margin for day trades in this symbol is relatively low the risk of a black swan event or “flash crash,” makes the reward to risk ration in almost any type of scalping setup unfavorable. Luckily binary options offer a solution to this problem. The intraday expirations available in Nadex listed binary options allows a trader to take trade setups with much better reward to risk ratios in markets that are range bound.

There are several ways a trader can use binary options trading to navigate a range bound market but the most simple methods are described below.

Buy binary options at key support levels: Once a trading range for the day has been established a trader can look to buy binary options with strike process close to the bottom of the range. A trader can buy in the money options or wait for the market to test these downside levels for an opportunity to buy at the money binaries.
Sell binary options at resistance: Once the top of the range is established a trader can look to sell binaries with strike prices close to that level. Again a grader can sell out of the money options or wait for a test and sell at the money options.
The short dated expirations in binary options are ideal for this type of environment. Nadex lists binary options with expirations every 20 minutes allowing a trader to take multiple positions through expiration per day. If you have been struggling with this market you may want to consider binary options trading.

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